Leadership #3: Your Plan for 2009-10

During the last few weeks I’ve been discussing Leadership levels and why thinking about your leadership style and approach is important. Coaching is a great mechanism to make progress on your leadership abilities and I encourage anyone to explore this option.

Developing a short-term 2009-10 plan for manufacturers of all sizes and in all markets is what’s on my mind today.

Why?

No one needs to tell us how difficult the economic landscape is for manufacturers world-wide, and ironically US manufacturers may be in better shape than their foreign competitors.

According to a Bank of America / Merrill Lynch March 5, 2009 Economics Snapshot:

“A garden-variety recession in the post-WWII mold sees employment decline around 2 million. In just five months, we have lost 50% more than we usually do in a classic 10-month downturn. This recession is already heading into its 16th month, matching the worst of the past five decades, and we have lost 4.4 million jobs, which is the steepest employment loss, going back to the 1940s.”

Here are some additional factoids:

Capital goods orders down to -5.7% in January

The portion of the report that feeds directly into GDP, non-defense capital goods excluding aircraft, was revised down to -5.7% m/m for January from -5.4% previously. Cap-ex shipments were about unchanged at -6.7% for the month, the largest decline in the history of the series and leaves our tacking for cap-ex at -22.0% q/q annualized for 1Q.

Inventory situation worsening

Manufacturers made little progress in paring inventory stockpiles, trimming inventories by only 0.8% m/m versus our expectation for a 1.4% decline. The inventory to shipment ratio shot up to 1.46 months in January from 1.44 months in December and a significant deterioration from a year ago when the ratio stood at a stable 1.23 months. We continue to expect inventory de-stocking to weigh heavily on top-line GDP growth in 1Q and 2Q.

Manufacturing activity continues to contract

Not one industry reported any growth in new orders, backlogs, payrolls or prices. At this level, activity in the manufacturing sector continued to contract swiftly over the month with declines in each sub-component. The new orders index was a tick lower over the month, likely reflecting large cutbacks in cap-ex spending as well as the ongoing inventory correction. Amazingly, despite the falloff in production, fully 28% of respondents said that their customers’ inventories were “too high” compared with 13% a year ago. These trends will continue to weigh heavily on orders and output in the months ahead. The production index, though higher versus January, remained depressed at 36.3 and a level consistent with falling output. The two trade components were also very weak – import orders fell to a new historic low and export orders were unchanged at 37.5.

These results are not surprising given the sharp slowdown in global trade activity. The employment component was the standout detail; at 26.1 this is a new record low. ISM manufacturing data collection began in 1948 putting today’s employment index into context – clearly layoffs in the manufacturing sector accelerated over the month and at a pace not seen in recent history.